Taking a Swipe at Card-Swiping Fees

A growing source of profit for card companies took a hit in Vermont.

Retailers have won a small victory in Vermont. Under a unanimously passed state law, they have gained more control over interchange or "swipe" fees -- fees retailers must pay for processing credit and debit card transactions. These fees, according to the National Retail Federation, allowed Wall Street to collect $48 billion in 2008 from merchants and their customers.

Card companies have long held that interchange fees help maintain the transaction system. When store owners agree to accept a customer's credit or debit card, the store owner's bank pays an interchange fee of roughly 1 to 3 percent of the purchase price to the cardholder's bank. Retailers argue that these fees cut into their profit margin, especially on small purchases. Rather than risk penalization from the card companies for setting minimum amounts for card purchases, retailers instead raise prices to offset the fee.

The new law -- the first of its kind -- permits Vermont store owners to only allow credit or debit as payment for purchases of more than $10. It also allows merchants to choose which store locations accept cards and provide discounts to consumers who use cash or another form of payment, mimicking discount laws in other states . "It's not earth shattering in what it does," says state Sen. John F. Campbell, a co-sponsor of the bill, "but it has the potential to be that spark that lights the fire that brings consumer rights further than it has in decades."

The bill became law without the signature of Gov. Jim Douglas, who said the issue is national, even international. In fact, Congress included broader interchange regulation as part of its financial reform legislation, which includes similar provisions to Vermont's law and the ability for the Federal Reserve Bank to negotiate interchange fees.